Sustainable Business. Clean Technology. Green Marketplace.

June 25, 2006

Climate Change: 'Adapt or Bust'

Probably no sector is more conservative than the insurance industry, and I'm not referring to its political posturing. Insurance is, at its essence, a numbers game -- about risk management, probability theory, and certainty. And so it is noteworthy that the insurance industry's concern over climate change continues to grow, and that the warnings are becoming louder and clearer.

But the noise level on this topic has grown considerably of late. Last week, National Homebuyers, the U.K.'s largest consumer-facing property purchasing company, issued a warning to homeowners and home purchasers to consider environmental changes while making decisions in the property market. It pointed to several profound changes taking place "that will affect the U.K.," including the desertification of southern Spain, the disappearing Alpine glaciers, and worsening Mediterranean droughts. It concluded:

The knock on impact to the UK includes the increased risk of storm damage, especially at coastal areas and flooding in the Thames estuary, and eastern England, from higher levels of rainwater running downstream, swelling rivers, and higher sea levels pushing water upstream. Other impacts could include increased coastal erosion and deposition levels, lower temperatures and freezing winters and changes in drying soil that could damage foundations as early as this summer. All this could affect property, and it's ability to be mortgaged, sold, and insured.

Meanwhile, Swedish scientists warned that climate change will increase the risk of flooding in parts of Sweden as rising temperatures bring more rain and less snow. Insurance companies face new challenges in areas likely to be subject to increased flooding, they noted.

The loudest warning was sounded by Lloyds of London, the world's oldest, largest, and most well-known insurance exchange, which this month issued a report urging insurers "to take climate change seriously or risk being swept away." With new weather patterns, exposures are changing and insurers need to act now, says the new Lloyd's report, titled Climate Change: Adapt or Bust (download-PDF).

The report is fascinating reading, given its frank, candid tone -- something not often heard from any business sector, let alone one with such conservative roots. For example, consider the report's conclusions:

We don't know exactly what impact climate change will have. But we do know that it presents society and the economy with an increasing level of uncertainty as it seeks to manage its risk.

We believe that it is time for the insurance industry to take a more leading role in understanding and managing the impact of climate change.

This means that the industry can no longer treat climate change as some peripheral workstream, simply to tick the regulatory and compliance box, or to support its public relations strategy.

Instead, understanding and responding to it must become "business as usual" for insurers and those they work with. Failure to take climate change into account will put companies at risk from future legal actions from their own shareholders, their investors and clients.

Climate change must inform underwriting strategy -- from the pricing of risk to the wording of policies.

It must guide and counsel business strategy -- including business development and planning.

And it must lie at the heart of a new impetus to engage with the wider world through meaningful, tangible partnerships to mitigate risk -- bringing corporate and social responsibility plans to life.

The insurance industry must now seize the opportunity to make a difference, not just to the future of our own industry, but to the future of society.

The implications extend well beyond the insurance industry, affecting every business sector -- and many consumers, too. The Lloyd's report says that the industry needs to stay ahead of the game by taking a new approach to underwriting, with pricing and capital allocation models regularly being updated to reflect the latest scientific evidence.

For example, current sea levels are higher in the Gulf of Mexico than in the past and, with sea temperatures rising, the industry must prepare for increased windstorm activity. It also means that US hurricane exposure will remain high and insurers need to plan for that. Risk modeling and pricing are key factors which the industry cannot afford to lose sight of.

How will this affect companies' ability to obtain affordable insurance? To the extent that insurers continually adjust their risk tables "to reflect the latest scientific evidence," how will the steady drumbeat of scientific studies on climate affect everyone's premiums? And what happens when the risks get become unmanageable, at least in insurers' views? How will rising costs -- or the unavailability -- of crop insurance, flood insurance, and other products that mitigate business risks affect business and economic well-being?

Comments

Joel,

Another good article. Not sure, but have you done an article about how to advance this in the political process so that the next gubernatorial or even presidential election this gets discussed rather than swept away? It might be helpful to know which lawmakers have a a position on climate change and which don't. For the average citizen to become involved beyond voting with their consumer dollars they need to be educated about how to vote in the political process.

I believe any hope that the problem of climate change can be solved within the existing economic framework of Neo-Liberal Capitalism will prove to be utterly unfounded. To try to put this right without rectifying the clapped out global financial system won’t work and environmentalists doing so will carry on coming up against a brick wall. They need to look at the way this system works and intellectually grow beyond the conditioning that economics and finance can only be understood by economists and financiers. Of course its true that they are doing something very useful in highlighting to the unaware the “elephant standing in the corner” but we’re all locked in to an international economic system that most effectively blocks substantial change. **New Para**

Let me try to explain. The two main cornerstones of Western economies are usury and speculation. Usury in that the vast majority of money in circulation has been electronically created by the commercial banks and is called by them “credit” and is lent to Governments and individuals for quick profit not for a particular motive of world betterment. Nothing moves when electronic money circulates when you use your debit card, direct debits, cheques etc and when Governments borrow money- all that happens is that the drawer’s data entry is debited (decremented) and the payee’s is credited, (incremented). So this money can be created at negligible cost to the banks because it is created and exists only as a DATA entry in our electronic bank accounts and is exchanged between them as such only. The stuff in your wallet/purse created by the Royal Mint for the Bank of England (whose revenue DOES accrue to the state) represents a tiny fraction of the ‘money’ that exists, the vast majority originated as loans mostly created by the commercial banks under this “fractional reserve banking system”, circulates electronically and the vast profit (interest) levied on all of us accrues to bankers not Governments. For more information on how this amazing system has evolved (which one could be forgiven for thinking has been deliberately designed with a main aim to enrich private financial elites) in the UK and many, many countries I refer you to the expert writings & progressive proposals at www.jamesrobertson.com. Even pretty low corporation tax is often avoided by the use of foreign tax havens, (At least £20 Billion total in the UK per annum avoided at 2003 figures- [War on Want pamphlet]). The need for the continuing increase of the assault on the world’s resources substantially stems from the imperative of “economic growth” which is necessary to keep up with the ever spiralling overall interest payments due on the explosion of different types of loans created by commercial banks and other private interests. I read that the exponential growth in private credit has been allowed to occur with all its wanton increase in the consumption of resources and debt hardship because of outsourcing by corporations of huge amounts of skilled & unskilled jobs to developing countries with cheap labour and minimal regulations under globalisation (“corporate flight”). With the generally decreasing availability therefore of properly paid quality jobs, to make ends meet governments and individuals in richer nations have had to be allowed to borrow more and more. I recommend the reading of the website and books by the US professor of economics Ravi Batra who has a lot of hard hitting and extremely interesting things to say on this matter, www.ravibatra.com. **New Para**

I refer to the ‘cornerstone of Speculation’ in that National economies and their populations are utterly dependant on the $2 Trillion or so (equivalent) that changes hands electronically every DAY- untaxed- around the world on the “financial markets” in search of speculative quick profit unrelated to any exchange of real goods or services. Utterly dependant because National Governments create hardly any of the money that is in circulation at all as I have already explained and they need to compete internationally to keep on attracting this privately created & transmitted globally mobile electronic money which has become the lifeblood of all our economies. Financiers and corporations increasingly trade IN money not WITH money, since deregulation in the 1980s- eg Removal of foreign capital exchange controls (and credit controls) which happened then. Why did we multi-nationally cede so much control over our economies then to those which to many might seem like a load of locusts? Are the ones (IMF, WB?) who inspired our national leaders to do this still in positions of influence? In this “liberalised” regime why create, innovate and trade in cumbersome goods when one can make far more far quickly and with far less risk just by moving money (data) and money instruments between computers around the world? Almost all the global financial institutions and even many corporations are at it. A “monstrous global casino” in the words of sustainable economics columnist Hazel Henderson. Any government that even publicly SPEAKS of restricting it, or taxing it, or significantly environmentally regulating the stock market listed business that it invests in, or getting off the absurd merry-go-round of competing with other nations to clamp down on corporation tax so as to attract employment and capital, or creating their OWN electronic money, or even threatening tax havens, faces economically disastrous capital flight to nations NOT doing so within hours on the trading computers on the stock markets and the derivatives computers of the international corporations and banks. You see how the financier oligarchy has got us all over a barrel? No Government dare even publicly consider democratically demanded change to the status quo. No corporation dare significantly reduce the current quick profit return to its international capital investors by SIGNIFICANT investment in alternative forms of energy & transportation as to do so invites a declining share price and capital flight to corporations not doing so. The intellectual economist Lyndon LaRouche in Executive Intelligence Review (see below) actually uses the term “Financier Oligarchy” referring to the way our ‘democracies’ are going under the economic & corporate globalisation I have already described. If you think carefully about it you might realise that under neo-liberalism what we as nations are all having to do is compete to make often fabulously wealthy owners of international capital- grow even richer- for no effort. Before anyone pulls the “pension funds” ‘old chestnut’ on me, let me retort that I recently heard on a BBC programme that only 20% of shares are owned by pension funds. A POSSIBLE SOLUTION to re-establish control over international capital and corporations by electorates and governments is proposed by “The Simultaneous Policy” at www.simpol.org and I believe progressives might feel their strategy warrants consideration. **New Para**

Most mainstream media outlets are owned by stock market listed corporations. Does anyone believe such a corporation will allow SERIOUS debate in its pages or TV stations, of reform to the international financial system when it is this system that is the investment hand that feeds it, both owning the shares and placing the corporate adverts? Does anyone seriously believe that one example tabloid and TV/news station owning international corporation that currently pays no corporation tax in the UK by the use of tax havens will seriously allow such debate in its media outlets? I’m not suggesting columnists and editors are directly told what to say and what not to, but they know there are limits which they must not cross if they are to retain their jobs which are mostly in the form of shortish term renewable (or not) contract posts. And most of them seem never to have asked themselves what money really is, who creates it, who administers its circulation, who profits from it and why no Government of left OR right credentials strangely refuses to reinstate fair corporate taxation and environmental regulations ONCE IN POWER despite the obvious dire financial state of our public services, worsening annually, and the developed countries still paltry overall help to the developing ones whose populations are starving to death in their millions monthly for the want of the huge surplus of food per capita that exists worldwide (Some 10%- look up UN Statistics). It should be obvious surely that there’s a CHRONIC lack of money for foreign aid and public services for all our government’s pathetic obfuscation that the latter need more “modernising”, ie. another round of cuts. The neo-liberal free movement of capital & corporations is leaving the competing nations’ governments with a chronic lack of cash for public spending on virtually everything- from palaces to prisons.**New Para**

I believe that Planet Earth’s environment is in a sad and perilous state which each day brings it nearer to the critical, and that even the most dire prophecy falls short of the calamity facing the world today, (this quote from www.share-international.org). Anyone who seriously believes that humanity can burn off gigantic amounts of carbon into the atmosphere daily over some 200 years (in the form of greenhouse gases from fossil fuels) that had been gradually accumulated beneath the earth over hundreds of MILLIONS of years, and while annually cutting down tens of millions of acres of atmosphere purifying tropical forests- all of this without incurring MAJOR upheaval and destruction to the earth’s life supporting natural climate systems- is conditioned and deluded indeed. **New Para**

I believe that only a total and systemic collapse of the world’s financial system will bring humanity to its senses and- (even though I know this itself would cause major trauma for a while because we have allowed stock market listed corporations to take over most food and energy production and distribution worldwide)- it is my belief and hope that this is coming to pass. (I refer again to the writings of economics professor Ravi Batra). The men of money’s selfish greed and competition is over-reaching itself at long last and the frantic efforts to prop up the system behind the scenes are at long last crumbling. “The REAL economy has fallen out from under the markets which have been artificially propped up by accounting tricks, enormous and unpayable debt loads, and mass delusion on the part of the markets and the public” (John Hoefle banking columnist, and refer also to the writings of economist’s Lyndon LaRouche’s Executive Intelligence Review for more information, www.larouchepub.com). The signs of the oncoming collapse are obvious for those who look beyond their own narrow interests and look below the surface at powerful people’s MOTIVES- not what they SAY but what they DO and WHY that might be- with objectivity. People who bother to READ & STUDY widely. Anyone who thinks that substantially unrestrained powerful people in today’s out of democratic control globalised capital/corporate world are not manipulating to retain and enhance their own selfish interests, and who denounces those who highlight this as “conspiracy theorists”, is deluded and conditioned indeed. They have just not reflected seriously on the sad condition of greed and fear of loss as well as spiritual poverty and poverty of intellect that dominates the natures of many, many of our fellow human being financier oligarchs in power. We live in a competitive economic culture which makes a VIRTUE out of consumption and greed and it's essential we realise it, detach from it and protest peacefully against it. If we want to survive un-decimated as a species, we’ve surely got some major waking up to do- and quickly.